THIS BLOG RATES THE S&P 500 BUY/SELL/OR HOLD EACH DAY WITH 2-GOALS FOR LONG TERM INVESTMENTS: (1) PRESERVE CAPITAL (2) BEAT THE S&P 500.
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Monday, March 10, 2014

Stock Market Crash? Depends on who’s talking...RSI

MID TERM ELECTION CYCLE FORCASTS APRIL PEAK – BUT NOT A
CRASH (Financial Sense)“There is a fairly regular pattern to how the market
behaves during what is called the "four-year election
cycle." Typically, we get a peak in the spring, a bottom in late
summer, and then a strong rally into the pre-election year…”Full commentary at...http://www.financialsense.com/contributors/chris-puplava/mid-term-election-cycle-forecasts-april-market-peakSome don’t even see a top at all…NO MARKET TOP (Financial Sense)“Richard Dickson, Chief Market Analyst at Lowry Research.
Richard sees no current signs of a market top, and notes that there is buying
coming into the market. Richard also points out there are no divergences in the
Advance/Decline line as well. He believes that buying on the dips is still the
way to go at this stage of the bull market.” From…http://www.financialsense.com/financial-sense-newshour/richard-dickson/no-clear-sign-market-topPerhaps he doesn’t see any
signs; others do…MARGIN DEBT SUGGEST DRASTIC PULLBACK (Marketwatch)“A number of
warning signals are flashing in the stock market, and while not indicative of
an imminent crash, they’re telling investors to exercise caution, say market
strategists…”“…warnings signs: The indexes’ string of record highs;
high levels of margin debt, or borrowings to finance stock buys; the slim
number of prior bull markets that have lasted past this point; and valuations
that are close to levels when stocks last peaked. Margin debt, which tends to
spike alongside stock rallies and pullbacks, has been rattling investors for months . “As that
debt goes up, the market’s foundation gets shakier and shakier,” said Brad
McMillan, chief investment officer for Commonwealth Financial. “The correction
could be deeper.”http://www.marketwatch.com/story/stock-caution-urged-as-margin-debt-levels-hit-new-highs-2014-03-09STUDENT LOANSI was astounded to find that U.S.
Federal receipts from Student loans are 4-times the receipts received from U.S.
taxes.That’s one reason why you will
hear many talking about a crisis in student loans. Kids are taking on huge
debts that may not be paid back while the Government is counting on the
payments to float the country.Here’s an
article on the subject from Doug Short:http://advisorperspectives.com/dshort/commentaries/Federal-Government-Assets-and-Student-Loans.php

RUSSIA PAYING A HEAVY PRICE FOR
UKRAINE INTERVENTION (CNN/MONEY)

“Tumbling stock markets and a big currency devaluation
are delivering a blow to its faltering economy. ‘So far we've seen a major
impact on the Russian economy and the Ukrainian economy, and some financial
impact on countries that border that area,’ said European Central Bank
President Mario Draghi. ‘The impact on the Russian economy is severe.’ Russia's
central bank was forced to jack up interest rates to 7% from 5.5% on Monday [a
week ago] in a bid to stabilize markets and counter the impact
of a near 10% decline in the value of the ruble this year.” Full story at… http://money.cnn.com/2014/03/06/investing/russian-economy-damage/index.html?iid=HP_LNMARKET REPORT Monday, the S&P 500 fell 1 pt. to 1877 (rounded).VIX was up about 0.6% to 14.20The yield on the 10-year Treasury Note fell slightly to 2.78%.RSI (SOME BORING TECHNICAL STUFF FOR ANALYTICAL GEEKS)I have been looking at the Relative Strength Indicator
(RSI). In simple language RSI is a technical indicator that shows the
percentile of the size of up-moves compared to the size of all moves (up and
down) over a given period of time usually 14-days.As of Monday, the RSI (SMA) was 68 based on
the 14-day simple moving average.That
means that the up moves are in the 68th percentile of all moves
during the recent 14-day period and that is a strong value. Here’s some info from StockCharts.com:“Developed
J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator
that measures the speed and change of price movements. RSI oscillates between
zero and 100. Traditionally, and according to Wilder, RSI is considered
overbought when above 70 and oversold when below 30. Signals can also be
generated by looking for divergences, failure swings and centerline
crossovers.” Further discussion at…http://stockcharts.com/help/doku.php?id=chart_school:technical_indicators:relative_strength_inAs I attempted to calculate RSI, I became a little
frustrated, because I was unable to duplicate the value published in Yahoo
Finance charts or in the charts at Google. Here’s a yahoo chart showing the
S&P 500 and its RSI. http://finance.yahoo.com/q/ta?s=%5EGSPC&t=1y&l=on&z=l&q=l&p=&a=r14&c=It turns out that these charts of RSI are based on the
Simple moving average and are not front-weighted as proposed by Wilder nor do they
use an exponential moving average as others do.The simple moving average is based on an alternate system developed by
Cutler.I’ve looked at the various ways to calculate RSI and so
far, the simple moving average looks awfully vague since it’s peaks and troughs
contain numerous values above 70 and below 30 so the above overbought and
oversold values don’t give actionable signals.On the other hand, the EMA system aligns peaks above 70 and troughs below
30 closely to the tops and bottoms of the S&P 500 index.Unfortunately, there are still many false
signals.I’ll keep looking at this and
perhaps something good will come from it.Divergences of RSI trend vs. the S&P 500 may be of value.So far it’s just a geeky academic exercise.

MARKET INTERNALS (NYSE DATA) The 10-day moving average of stocks advancing dropped
again to 54% at the close.(A number above
50% for the 10-day average is generally good news for the market.) New-highs outpaced new-lows Monday, but the
spread (new-highs minus new-lows) fell to +63. (It was +189 Friday). The 10-day moving
average of change in the spread was minus-17. In other words, over the last
10-days, on average, the spread has decreased by 17 each day. The 10-dMA of up-volume
is falling too.Only 10-dMA of breadth
(%-advancing) is positive.Breadth is
always the slowest internal to react.The
internals are neutral on the market, but are hinting at a downturn.

Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late.They are most useful when they diverge from
the Index.In 2013, using these
internals alone would have made a 16% return vs. 30% for the S&P 500 (in on
Positive out on Negative – no shorting).Of course, few trend-following systems will do well in an extreme
low-volatility, straight-up year like 2013.

NTSM

The NTSM system remained HOLD today, Monday. The most
recent Buy signal was 28 Feb, although I’ve adjusted the Buy override (5-10-20
Timer + Market Internals).With the
adjustments included, the Buy would have been 13 Feb.

MY INVESTED POSITION

I am about 50% invested in stocks because I upped my
stock holdings by 10% on 12 Feb and another 10% on 28 Feb.That’s fully invested for me at least as far
as long term money goes.This is a
suitable stock allocation for a balanced portfolio for someone my age.Since bonds are yielding very little now, I
will consider adding more to stocks later if there is a buying opportunity.

Followers

About Me

I am an engineer with a lifelong interest in "playing with numbers" so what could be more fun than trying to develop a system that beats the stock market? Well, lots of things, but I decided to do this anyway.
While I am not a finance-professional, or professional investor, I have developed some skills.
I competed in two CNBC Million Dollar Portfolio contests finishing in the top 4% in 2008 (34,320th of 800,000) and the top 0.1% (448th of 500,000) in 2009. More importantly, I managed to sell out of my retirement accounts at or near the top in 2000 and 2007 and bought close enough to the bottom that I didn’t lose too much sleep. (Even Bill Gates lost SOME sleep.)
I hope that my thoughts will help you achieve your investing goals. Please remember that my ideas are free and there may be times when my ideas are worth less than what you paid.